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San Diego’s Sapphire Energy Names New CEO Amid Signs of Change

Mon, 07/28/2014 - 17:29
Bruce V. Bigelow

It’s been clear for awhile that changes were underway at San Diego-based Sapphire Energy, an industrial biotech founded in 2007 to develop a revolutionary process for turning algae into gasoline and other fuels.

Today the San Diego startup says former Verenium CEO James Levine has taken over as Sapphire’s CEO from Cynthia “C.J.” Warner, an oil industry veteran and expert in refining, transportation, and operations who joined Sapphire in early 2009. She was previously a Group Vice President for Global Refining at BP, and is said to be returning to the oil and gas industry.

Warner joined Sapphire as president and chief operating officer, working initially with founding CEO Jason Pyle. But her expertise in refining operations made her career path manifest as Sapphire moved to demonstrate the company’s technology at an industrial scale. She was named board chairwoman in 2010 and became CEO in 2012, when Pyle left the company. In its statement today, Sapphire says Warner will continue to serve as chairwoman. Still, her departure signals an end to the company’s initial strategy, which was narrowly focused on producing algae-based biofuels.

I had surmised that the oil and gas industry’s expanding use of fracking technology to amplify conventional oil and gas production had undermined the economics that made algae-based crude oil production so attractive. Whether fracking has actually changed the economics, or merely injected enough uncertainty to make investors leery has become a matter of continuing debate. In any event, as a startup developing a sustainable energy alternative to traditional fossil-based fuels, Sapphire also encountered intense resistance in Congress to policy changes that could have helped algae-based biofuels gain a foothold in U.S. markets.

So while the company will continue to advance its work on algae-based biofuels, Sapphire also has been reorganizing and considering its strategic options. I recently reported that Sapphire reduced the size of its workforce earlier this year, trimming about 50 employees, mostly from development programs that had matured, rather than ongoing operations, according to spokesman Tim Zenk. The company now has a little over 100 employees, and the goal was to reduce the burn rate to make the best use of existing capital, he says.

James Levine

In a phone interview this morning, Levine says fracking “has almost been a sideshow” to Sapphire’s core expertise. “I don’t see fracking as the death knell of the strategy,” he said. “It’s just a part of the oil industry that we have to deal with.”

In his first day on the job, Levine says Sapphire is not announcing any substantive changes in the company’s mission or technologies. But he will be looking for ways to broaden and diversify Sapphire’s core expertise by developing new businesses in attractive areas—“something I would measure in months, not weeks.”

At Verenium, where Levine spent four years as a board member and two years as CEO, he led the … Next Page »

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Emulate Scores $12M to Shake Up Drug Testing With Organs on Chips

Mon, 07/28/2014 - 07:55
Ben Fidler

It’s an age-old problem with drug development: no matter how good a drug looks when tested in animals or petri dishes, there’s no guarantee it’ll have the same effect on a person. That unpredictability has delayed or doomed countless drug prospects—and drives up the cost, and time, it takes to make a successful therapeutic.

A new startup called Emulate, spun out of Harvard University’s Wyss Institute, wants to improve the odds and recalibrate how preclinical testing is done—by using what it claims is the most comprehensive “organ on a chip” and software system created to date.

Today, Cambridge, MA-based Emulate is officially ramping up with a $12 million Series A round that it’ll partly use to move out of Harvard University’s Wyss Institute for Biologically Inspired Engineering—where it’s been incubating—and try to set up shop in Kendall Square, says CEO James Coon. Venture firm NanoDimension is leading the financing, with additional contributions coming from Cedars-Sinai Medical Center and Swiss billionaire Hansjorg Wyss, the founder of the Wyss Institute.

Emulate will now start out on a difficult quest. It’ll try to prove that pharmaceutical companies and biotechs can reliably use its thumbnail-sized microchips in preclinical drug tests, rather than relying on in vitro or animal studies. It’ll try to show that its chips are different, and superior, to similar technologies being developed or sold by a number of other companies. And then Emulate will try to branch out into other industries, like using its microchip systems to test the safety of cosmetics or agro-chemical products.

It’s a big challenge—and the idea of organs on a chip has been around for years. But Emulate believes it’s got a chance because it’s based on the work of Harvard professor Donald Ingber, one of the pioneers in the field, who’s also the Wyss Institute’s founding director. The company has been incubated within the Wyss Institute for around five years, where scientists and an assembled in-house executive team have raised more than $40 million in grant money from the FDA and the Defense Advanced Research Projects Agency (DARPA). They also brought in industry researchers early on to help direct the design of the founding technology.

James Coon, CEO of Emulate

“We’ve been able to put a lot of resources around this,” Coon says.

Coon, a former AstraZeneca and GlaxoSmithKline employee and entrepreneur-in-residence at the Wyss Institute, and senior staff scientist Geraldine Hamilton (now president and chief scientific officer) are leading the company. Both Coon and Hamilton were executives of Research Triangle Park, NC-based CellzDirect, which Invitrogen bought for $57 million in 2008.

What Emulate has come up with is a way to manufacture tiny systems that mimic the functions of real organs—lungs, livers, and guts, among others—on microchips. Those chips can be used to run experiments and test how, in theory, a human organ would react to a potential drug. Take Emulate’s lung chip, for instance. It’s a small, flexible polymer with hollow channels running through it. Those channels contain a porous membrane in the middle that is infused with human lung cells on one side, and capillary blood cells on the other. Emulate uses mechanical forces to make the chip contract and expand, mimicking breathing. The chip has air running through the top, above the lung cells, and blood underneath the membrane, to approximate a real lung.

Coon says researchers can then use these chips as part of a “plug and play” system to create disease states and infections, test how these mini-organs would react to a drug, and then analyze the results. A lab instrument provided by Emulate, for example, maintains and feeds the cells on the chip. And the company’s software enables researchers to design an experiment and analyze the data that come out. The idea is that this process would be simple—and give drug companies a more representative indicator of how a real patient’s organ would respond to a potential therapeutic than isolated cells in a petri dish, or the reactions of animals.

“What we wanted to do really early on was create a platform that really automated this process, that made it easy to use, that made it plug and play, that made it robust and reproducible,” Coon says. “Ultimately, we’re trying to cut down on clinical failures.”

Ideally, Coon says, Emulate’s goal is to have this type of technology used by academic labs, research labs, and drugmakers across the globe—something of a new standard for preclinical testing. Its big idea down the road is to … Next Page »

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Innovation Hub: How Lego Built a Blockbuster Global Brand

Fri, 07/25/2014 - 14:16
Kara Miller

What products count as innovative? Often, the things we take most for granted.

Like Legos. A toy that was started by a failing carpenter in the 1940s, suffered a near-death experience several years ago, and is now experiencing blockbuster growth.

So, how did the company manage to stay afloat through a half-century of changing tastes and technologies? By sticking to its core and creating narratives, says David Robertson, a professor at Wharton and author of Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry.

I asked Robertson about Lego’s struggle to build its brand.

[This interview has been edited and condensed. For audio of the full conversation, visit innovationhub.org.]

Kara Miller: About a decade ago, Lego really ran into some problems. What happened to the company?

David Robertson: The genesis of the problems started in the late ’90s. Lego was convinced, as a lot of companies were, that they were being disrupted by the virtual and digital. They thought they, and all of the other traditional toys, were going to be left behind. So they challenged their designers to come up with the next great play experience—to think “outside the brick.” Most of their ideas failed, and they were close to bankruptcy in 2003.

KM: It sounds like they were trying to be creative and innovative. Why did things fall apart in such a serious way?

DR: It’s actually a really interesting example of how to respond to disruption. Lego was convinced that they had to adopt the new technologies that were changing the market. But what they learned, almost by accident, is that they didn’t need to respond that way. They had to adopt the technology, but, more importantly, to not leave the core behind.

KM: So what clicked for Lego? How did they manage to stay true to the product?

DR: If all you offer is a box of bricks, you’re going to be out of business pretty quickly. Someone is going to do it cheaper, faster, better than you. You have to tell a story. You have to grab attention. And Lego realized this. They wanted kids to be caught up in the story. They decided to license things like Teenage Mutant Ninja Turtles and The Simpsons because they want to tell stories around their bricks. It leads to a cycle where the more toys you get, the more stories kids are able to make up on their own. The latest example we’re seeing of that, the Lego Movie, is just the next evolution.

KM: What about the broader innovation culture of the company?

DR: They are not the hero approach to innovation. The way Apple is written about is Steve Jobs at the top, demanding insanely great products and getting involved in every step of the process. Lego explicitly doesn’t work that way. They have created a system where there are lots of Steve Jobs spread throughout the company. That’s a real accomplishment.

Oliver Lazarus contributed to this report.

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West Coast Biotech Roundup: IPOs, Gilead, Sofinnova, & Denouements

Fri, 07/25/2014 - 13:06
Bruce V. Bigelow

What a week to round up. Against a backdrop of regulatory approvals, strategic deals, and R&D initiatives, a fresh salvo of life sciences IPOs signaled a resurgence in public offerings already running ahead of last year’s pace. We also saw moves to resolve weeks of drama at The Scripps Research Institute in San Diego and at the headquarters of California’s stem cell agency in San Francisco. So, without further ado…

—In a statement Monday, chairman Richard Gephardt of The Scripps Research Institute’s board of trustees said Michael Marletta plans to leave the institute, following an internal faculty revolt over the new president’s proposed deal with USC to bridge a $21 million funding shortfall. Marletta’s tenure as president began in early 2012. In a very short statement, the former St. Louis congressman said the board is working on a transition plan with Marletta.

—In our other denouement of the week, the man who succeeded Alan Trounson as president of the San Francisco-based California Institute for Regenerative Medicine pledged to act with personal ethics and integrity. A week after officially leaving his office at the state’s stem cell agency, Trounson joined the board of Newark, CA-based StemCells, a startup that received CIRM funding. The new CIRM president, Randy Mills, said he will refuse gifts or travel payments from any company, institution, or individual who gets CIRM funding. Mills also declared that he will not accept a job with any CIRM-funded company for at least a year following his departure.

—American life sciences companies raised $3.9 billion in 55 initial public offerings during the first half of 2014, accounting for more than 81 percent of the $4.7 billion raised globally in 68 IPOs, according to a tally from Burrill Media. In a statement, CEO G. Steven Burrill said, “The first half of 2014 saw the most life sciences offerings completed in any six month period ever.”

—Meanwhile, life sciences companies continued to go public, but it hasn’t been as easy as it was just a few months ago. In its first day of trading yesterday, San Diego-based Pfenex (NYSE: PFNX) fell to $5.30 a share. The company’s lead candidate is a biosimilar form of ranibizumab (Lucentis), a drug sold by Genentech and Novartis for … Next Page »

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Dave Eggers’s “The Circle” Fails as Satire, Succeeds as Prophecy

Fri, 07/25/2014 - 10:11
Wade Roush

When the anti-utopian book The Circle, the latest novel from McSweeney’s founder Dave Eggers, came out last October, reviewers hailed it as a “provocative” and “foreboding” warning about the spiritual costs of excessive sharing and transparency on the Internet. The Guardian even called it “a deft modern synthesis of Swiftian wit with Orwellian prognostication.”

But for a satire or a fable to be effective, in the way that Gulliver’s Travels or 1984 were, its characters and situations must usually bear some resemblance to those we know. They can’t depart entirely from reality.

So my concern grew as I made my way deeper and deeper into The Circle this week and found so little that I recognized. Set in a near future where a single, unreasonably successful social media company has displaced Google, Facebook, PayPal, and just about every other Internet giant in the Bay Area, the novel is clearly intended as social commentary. Its protagonist starts out as a customer service agent at the Circle, whose campus in the fictional East Bay city of San Vincenzo is “on land that had once been a shipyard, then a drive-in movie theater, then a flea market, then blight” but is now a green, hilly heaven. It’s obviously a riff on the Googleplex, with a dash of Sun Quentin, Facebook’s campus in Menlo Park.

But that’s pretty much where the similarities to real-world Internet companies end. All of the mid- to high-level employees of the Circle speak in a cheerful yet manipulative way that might be common at TED and the Aspen Ideas Conference but which I’ve never heard, in four years as a technology reporter covering Silicon Valley, from actual Facebook or Google employees. Mae Holland, the main character, is an implausibly naïve Leni Riefenstahl type who’s fallen under the spell of the Circle’s founders and actually believes the self-serving maxims they engrave in steel, like SECRETS ARE LIES. SHARING IS CARING. PRIVACY IS THEFT.

There is, I’ll admit, one Eggers zinger in the book that rings true. At the Circle, one disillusioned character comments, there’s “enough money to make any dumb idea real.” The fictional company’s silly side projects, like counting every grain of sand in the Sahara, come off as valid parodies in a decade when Google has sunk untold sums into moonshot ideas like space elevators, jetpacks, hoverboards, teleportation, wireless Internet access via balloons, power from high-altitude kites, and, of course, Google Glass.

But overall, the novel fails as an incisive depiction of the real innovation culture in Silicon Valley. The technology leaders I’ve covered—people like Mark Zuckerberg, Eric Schmidt, and Marissa Mayer—are far more self-aware and far less ruthless and self-assured than the ones in the book. If Google can’t even convince people to use its social network, Google+, it’s not about to take over the functions of police departments, Congress, and the DMV, as the Circle does in the book.

So is there any reason to take the rest of this book seriously? Should The Circle really make us think twice about the corporate drive to turn every search query or status update into a commercial transaction, or about the modern habit of chronicling our lives through an unending stream of tweets, texts, and newsfeed posts?

Yeah, actually, it should. The Circle may lack believable, rounded characters and the traditional elements of a plot. (Instead, there’s a succession of enigmatic foils who pop into Mae’s life at awkward moments, like the angel Clarence in It’s A Wonderful Life, offering chances at redemption as her projects and ideas draw her closer to the Circle’s dark inner circle; the tension is around whether she’ll take them.) Nonetheless, the book is entertaining, and gets across some powerful reminders, to wit: technology alone is never the solution to a social problem; tagging someone in a Facebook post isn’t a substitute for making a true emotional connection; you can’t have an inner life if there’s no sacred boundary between inner and outer. And yes, even a flimsy novel can use the mechanisms of fiction to make social point in a more memorable and effective way than an essay. Certainly, Eggers’s novel is more invigorating than other recent books that make essentially the same points, like Jaron Lanier’s Who Owns the Future? or Evgeny Morozov’s To Save Everything, Click Here.

And recent events show that Eggers is a canny observer of Silicon Valley technology, if not always of the people who build it. In the novel, one of the Circle’s innovations is a system of small, wireless, high-definition, Internet-connected video cameras called SeeChange—not to be confused with the real San Francisco-based health insurance company of the same name. The company frames the technology as a step toward greater knowledge and transparency. Who wouldn’t want to be able to check the weather conditions before driving all the way to Stinson Beach to go surfing, or monitor their pet or an ailing parent from their phone or their desk at work? And in a world where every action is recorded, wouldn’t there be fewer opportunities for misbehavior?

Until recently, it would have been easy to laugh off such questions as science-fiction rhetoric. (In the book, Mae’s shame over being caught stealing on camera becomes the final bit of leverage the company needs to draw her fully to the dark side.)

But then Google’s home-devices subsidiary, Nest, purchased Dropcam, a maker of—you guessed it—small, wireless, high-definition, Internet-connected video cameras. Now, I know the founders of Dropcam, and they’re decent guys who take privacy seriously. And Nest promises that the cloud-stored data recorded by its cameras won’t be shared with anyone, including Google, without the owner’s permission. But Nest is already taking steps to open up its other devices, a thermostat and a smoke detector, to interact with software from Google partners and Google itself. It’s only a matter of time before home video monitoring gets looped into the larger “smart home” vision that is a growing obsession at Google, Apple, and other leading mobile, Internet, and hardware companies.

It doesn’t matter whether Google Now or Siri is the user interface for the smart home. Once every gadget, appliance, video camera, home heating and cooling system, and self-driving car is tied together, Internet companies will have access to a frightening amount of data about our movements through the physical world, not just the virtual one. And if Google has the information, it’s only safe to assume in the post-Snowden era that the National Security Agency has it too. (That’s how “We’re not Google” is becoming a sales pitch for some technology companies, as Xconomy’s Curt Woodward explained in a recent piece.)

I’m grateful to Eggers for writing The Circle. It doesn’t work perfectly as a novel. But it’s the most engaging distillation yet of the real and profound issues we should be debating at a time when the technologies of always-on connectivity, social-media oversharing, data mining, algorithmic decision-making, total surveillance, and the national security state are converging. A single book like The Circle probably won’t drive you off the grid, but it may make you think more carefully about how you connect to it.

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Cypher Genomics’ Analytics Tech Gains Some Cred in Illumina Deal

Thu, 07/24/2014 - 12:47
Bruce V. Bigelow

It’s probably just a matter of time before a new company combines the rapidly advancing technologies of genome sequencing, genetic diagnostics, and Big Data to become the Google of bioinformatics.

Cypher Genomics would like to claim that title, though it’s too early to tell if the three-year-old San Diego startup will be able to pull it off.

Today, Cypher says it is joining forces with San Diego-based Illumina (NASDAQ: ILMN) in a deal that lets Illumina’s sales force promote Cypher’s biomarker discovery services while pitching their own technology and services.

It seems like a sweet deal for Cypher, given that Illumina leads the market in next-generation gene sequencing technologies used by big pharma, biotech, government, and academic research institutions. Cypher currently has 10 employees, while Illumina has about 3,000.

“We’re a small, virtual company, so obviously getting access to Illumina’s large sales force is great,” says Adam Simpson, a life sciences executive and lawyer who joined Cypher earlier this year as president and chief operating officer.

Cypher’s agreement with Illumina also provides some credence to “Coral,” the analytic software Cypher has been developing to pick out individual genes in an ocean of DNA material. Cypher says its analytic technology also can be used to determine if a particular genetic variant is harmless or a troublemaker—and if it is a trouble-making gene, to see if it can be correlated with specific diseases and disorders.

Ashley Van Zeeland

Work on the kind of quantitative analytics and computational tools needed to screen millions of DNA bases, and to identify and classify thousands of genes, began at the Scripps Translational Science Institute (STSI), where director Eric Topol was working with Nick Schork, an expert in bioinformatics and genomic medicine, Ali Torkamani, an expert in drug discovery and experimental medicine, and Ashley Van Zeeland, a neuroscientist working in Schork’s lab.

All four co-founded Cypher Genomics in 2011—and Van Zeeland continues to serve as CEO. She says unnamed angel investors provided most of the necessary startup capital.

Cypher later began working with both STSI and Scripps Health on the “Wellderly Study,” which set out in 2011 to build a database made up of the whole genomes of thousands of elderly people, at least 80 years old, who were free of major diseases. The idea was to create a “reference genome” of healthy people (who presumably had few aberrant genes) that could be used as a basis of comparison. Through its strategic collaboration with STSI, Cypher Genomics gained commercial rights to use the Wellderly database in clinical studies.

Now, through its partnership with Illumina, Cypher is offering its genome analysis platform to pharmaceutical companies and other big customers. By comparing the genomes of patients enrolled in … Next Page »

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Reflections on RTP

Thu, 07/24/2014 - 09:47
Christy Shaffer

Having moved to the Research Triangle Park region in 1987 when my husband was recruited to Glaxo, I now realize that we chose “the right place at the right time.” I started a post-doctorial fellowship at UNC-Chapel Hill and eventually became a clinical scientist at Burroughs Wellcome, and we enjoyed raising a family in Chapel Hill. At the time, the region was just beginning to attract newer companies, but there was minimal corporate-academic interaction. The ecosystem has grown substantially over the past 25 years, driven in part by robust collaborations between industry and academia. A symbiotic relationship now exists that enhances job opportunities and keeps our unemployment rate relatively low.

In this regard, it is worth citing interesting research conducted by two UNC Chapel Hill faculty, Maryann Feldman and Nichola Lowe (“Triangulating Regional Economies: The Promise of Digital Data” forthcoming in Research Policy and “Firm Strategy and the Wealth of Regions,” working paper). These researchers have collected and analyzed an extensive data set that demonstrates the power of anchor companies and their interactions with flourishing academic and medical centers in a region. The first wave of company formation occurred in 1995 following the Glaxo Wellcome merger. It was during this period that I had the opportunity to join a start-up out of UNC-Chapel Hill that I would ultimately take public in 2000. Feldman and Lowe’s research indicates a spawning of over 140 companies by former employees-turned-entrepreneurs from GlaxoSmithKline and its antecedent companies. In some cases, scientists licensed innovations from Glaxo Wellcome to start their new ventures (United Therapeutics, for example, licensed a former Wellcome compound that would become a blockbuster new treatment for pulmonary hypertension). In other cases, they found technologies or core platforms from the local universities such as Duke University (examples: Trimeris and Phase Bio) and UNC-Chapel Hill (examples: Inspire Pharmaceuticals, Viamet, Parion Sciences, and Liquidia).

These companies raised more than $4 billion in venture capital; six of them went public, while 24 were merged/acquired over time. A few examples include Triangle Pharmaceuticals, founded by Burroughs Wellcome R&D executives (acquired by Gilead following the IPO); Chimerix, founded by Glaxo Wellcome scientists (which went public last year and whose board Chair is the former CEO of Glaxo); and Furiex, founded by a former Glaxo and PPD (Pharmaceutical Product Development) executive, which was recently acquired by Forest Labs/Actavis. I fully expect a few more IPOs in our region this year as well as strong corporate deal flow.

My personal belief is that the growth in our region will continue—if not proliferate—over the next decade. Many of the new companies have licensed technology from UNC-Chapel Hill, Duke,and/or North Carolina State University, and the number of spinouts from these universities has continued to increase. Several of those startups have gone public as well (example: Aerie Pharmaceuticals out of Duke). Based on work conducted by the Chancellor’s Innovation Circle at UNC-Chapel Hill, the number of spinout companies has more than tripled during the last several years. Further, the Carolina Express License, introduced in 2011, has significantly reduced the timeframe required for the out-licensing process.

In addition, with the greater emphasis on outsourcing certain aspects of biomedical research and clinical site management, the Contract Research Organization industry, in particular, has been booming for years in the Triangle. With approximately 150 large and small CROs in our region, we have the largest concentration of these companies in the world. Many of their employees once worked for Glaxo, Wellcome, GSK, or secondary spawns of those companies. Thus, the work force is highly experienced.

More recently, information technology startups have been forming in abundance, creating more diversity of companies in the region. In downtown Durham alone, we have roughly 100 tech startups in a 1-mile radius. Further, there is a convergence between healthcare and IT, which is creating new types of ventures.

Finally, it is worth mentioning that theses successes are not only due to the concentration of technology and academic institutions, but are also the result of the Triangle’s extensive cultural diversity. A fantastic music scene and a highly engaging artistic community provide cultural amenities. There are extensive college and professional sports venues, as well.

The mix of these elements helps to stimulate this verdant ecosystem and will continue to foster strong entrepreneurial enterprises. We cannot underestimate the importance of our region being considered a great place to live. To underscore this point, the former CEO of Burroughs Wellcome and two former Glaxo CEOs are still contributing to our ecosystem in a myriad of ways. They are active partners of venture capital firms, serve as board chairs of biotech/biopharma companies, and are actively involved in various non-profit boards and initiatives such as the RTP Foundation. These successful executives’ desire to give back and remain engaged is a huge boost, as they are ideal mentors for the next generation of entrepreneurial leaders.

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Xconomy Launches in Raleigh-Durham—10th Cluster in Our Network

Thu, 07/24/2014 - 09:34
Robert Buderi

Innovation, North Carolina style—at last.

Ever since writing the original Xconomy business plan, I’ve been looking forward to the day when we began covering innovation in the Tar Heel state. Now, I am extremely happy to announce, that day has come. Xconomy Raleigh-Durham is officially off the ground, and with its launch we have grown our news network to 10 high-tech clusters around the United States.

It’s great to be in North Carolina, one of the seminal innovation clusters in the U.S., and it’s great to be in double digits. There is to my knowledge no other new-media news organization covering the business of technology with as many boots on the ground in as many different centers of innovation as Xconomy. The list now reads, in order of appearance:

Boston

Seattle

San Diego

Detroit

San Francisco

New York

Boulder-Denver

Texas

Wisconsin

Raleigh-Durham

In each region, Xconomy reporters deliver daily stories about the high-tech and life science startups, bigger companies, investors, and innovators driving growth in the economy. But we don’t just jump on any story: we try to find the local story with global impact. That is, the story all too often missing from wider press coverage, but that deserves more of the limelight. And that, we believe, is our secret sauce when opening a new bureau: we bring stories of that region to a fast-growing, highly sophisticated business audience not just around the U.S., but around the world (25 percent of our traffic is from outside the United States).

And so it will be with North Carolina. Xconomy editors from around the network have teamed up to begin our coverage—and we’ll be rolling out their stories over the next few weeks, along with guest posts from our North Carolina Xconomists, or informal editorial advisors. It all starts today with a story from our on-the-ground writer Frank Vinluan, who’s delivered his personal take on the North Carolina innovation scene as well as a profile of BioCryst Pharmaceuticals, a small biotech that is developing what it hopes will become the first treatment targeting the Ebola virus. Along with that, Xconomy contributing editor Wade Roush offers an in-depth piece on ThinkHouse, a Raleigh-based live-in startup accelerator. And Xconomist Christy Shaffer of Hatteras Ventures has posted her from the heart, personal recollection on Research Triangle Park.

In that short list lies a hint of the wide variety of coverage we plan to deliver going forward. Many think of innovation in North Carolina as Research Triangle Park and its world-class concentration of life science companies like GlaxoSmithKline, Syngenta, Biogen Idec, or Bayer CropScience—all of which have large operations in RTP—along with smaller companies and biotech startups. And while that is true, there is a lot more going on, not just in RTP—and not just in life sciences. IBM and Fidelity Investments, Cisco, NetApp, and EMC are big tech employers in RTP, as is Cree, the LED lighting technology company. Raleigh is home to Red Hat, the leading open source software company. Contract research organizations (CROs) abound, led by Quintiles. And all throughout the Raleigh-Durham area, and beyond, you can find innovative startups (and startup spaces), as well as some bigger companies, in everything from healthcare to advanced manufacturing to foodtech, cleantech, cloud software, and more. Frank Vinluan’s overview has more complete details, from the history of the bar code to alternative energy, regenerative medicine, and how the blueberry genome might yield clues to human health.

We plan to write about it all.

As we begin our coverage, I’d like to say a special thanks to those who have made our launch in Raleigh-Durham possible. First on the list is our National Partner, Alexandria Real Estate Equities, the largest and leading real estate investment trust uniquely focused on collaborative science and technology campuses in urban innovation clusters, and which has a dominant market presence in RTP. Our two other anchor supporters include Biogen Idec, which has been a charter underwriter since our launch in Boston seven years ago, and which has its Patient Services operation as well as some manufacturing facilities (and 1,200 total employees) in RTP—and longtime partner Fidelity Investments, which has several thousand employees in North Carolina working in technology, phones, operations and other areas. I’d also like to thank our launch supporter Square 1 Bank, which has also worked with us in other cities, and special partner, the Council for Entrepreneurial Development, or CED.

All are great supporters of the local innovation community: they believe it deserves great coverage and a wider audience, which is at least partly why they are also supporting Xconomy.

If you’d like to join the ranks of our supporters, just let us know at sales@xconomy.com. Equally as important, if you have great stories of innovation in North Carolina, contact us at editors@xconomy.com.

And to stay on top of things in North Carolina and beyond, please like us on Facebook, follow us on Twitter at @xconomy—or sign up for one of our daily e-mail newsletters.  

We’re excited to be in North Carolina and look forward to hearing from you.

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Venture Capital Had a Great 2013—But Public Markets Were Still Better

Wed, 07/23/2014 - 19:08
Curt Woodward

In an industry obsessed with creating the next big thing, it can be easy to forget that a lot of big ideas simply crash and burn.

So here’s a little reminder: Last year, American venture capitalists put together their best annual performance since 1999. But it still wasn’t good enough to beat the public stock markets, which are cheaper, safer, and much more liquid investments.

Clearly, that’s a bad deal for many of the people who supplied money to VCs. But it’s much harder to say why VCs have done so poorly in the past decade—or whether things have changed enough to make the next decade a better bet.

The newest data on VC performance comes courtesy of Cambridge Associates, an industry insider that analyzes venture firm performance and produces anonymous information about the sector’s ups and downs.

That means you can’t tell which firms are winning or losing. But you can see how the broader VC sector is performing when compared to public stock market indexes.

In its July report, Cambridge Associates wraps up the full-year performance for VC and private equity investments, and it wasn’t exactly pretty. The firm’s VC index grew 27.2 percent in 2013, the best annual performance in 15 years. VC firms also recorded the second-largest payout for VC investors since 2000.

But that wasn’t enough to beat the Dow Jones Industrial Average, the Nasdaq Composite, the Russell 2000, or the S&P 500. You actually have to go back 15 years to find VC performance that outperforms the stock markets enough to truly justify the high fees, long-term lockup, and risk of those investments.

So why has VC done so poorly over the past 10 years? It’s hard to find a clear answer. But there are some good educated guesses out there.

Anand Sanwal, CEO of VC analysis software company CB Insights, says the winner-take-all nature of venture investing means that it can be hard for a broad-based investor to get a good return on their investment. Since the biggest wins go to a handful of firms, even decent wins can be swamped by a long list of underperforming funds.

“Ultimately, it matters what funds you as an investor are in. And so it’s not a bad asset to invest in broadly as when it outperforms, it really outperforms,” Sanwal says. “Said another way, if you are an LP in Sequoia Capital or Union Square Ventures or Spark Capital, you’re probably a pretty happy camper.”

Harvard Business School professor Josh Lerner sees it a little differently.

“The power law property of VC returns has characterized the industry’s returns since its earliest days, so is unlikely to be the explanation,” he says. More likely reasons, he says, are slow IPO markets and “change in the nature of entrepreneurship: changing market structure and regulatory environments meant that it was harder to capture outsized returns as a startup.”

And then here’s the simplest explanation of them all: maybe it was just bad luck. “VC has always been a seven fat years, seven lean years kind of business—this was just a bad series of years,” Lerner says.

… Next Page »

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Key Risk Conversations to Have With Your Board and Investors

Wed, 07/23/2014 - 04:00
Shellye Archambeau

Building a startup is a risky business. The only way to stay ahead of the risks is to be aware and informed about them.

The board of directors, in particular, needs to know enough about the risks in the business to make well-rounded strategic decisions. As for investors, most of them do their own risk analysis on a startup before putting in money. But if the startup is upfront about identifying and discussing its risks with investors, it is more likely to inspire confidence and credibility. With that in mind, here are a few key risks that startups should definitely discuss with their board and investors.

Business Plan Risks

The purpose of analyzing your business plan risk is to demonstrate to investors and the board that you’ve thought through the major risks confronting the organization, and have developed effective strategies to deal with these risks. Your business plan should be able to survive when things go wrong. Because things will go wrong.

So, while developing your business plan, consider the following risk areas:

Market risk is the risk that the market will evolve in an unexpected way. For instance, your offering could be too early for the market. Many companies developed tablet computers in the early 2000s, including Microsoft, Fujitsu, and HP. But the market wasn’t ready then. Now it is hard to imagine life without a tablet computer. Sometimes markets take too long to develop, and cash runs out while a company is waiting for customers.

Product risk is the risk that the product can’t be developed as envisioned with the right economics, scale, or performance. Biotech firms often have a high degree of product risk. There is no certainty that they can produce the drug that is expected.

Financial risk is the risk that a company will run out cash before achieving a state where more funds can be raised. Customers don’t always materialize at the expected rates, and may not always renew their contracts. Often, costs are much higher than expected to achieve the set milestones. The cost of capital is also very high. Boards and directors want to know these risks have been analyzed, and that reasonable plans have been identified to mitigate them.

Talent risk is another major risk area. A startup’s performance is directly linked to the capabilities, expertise, and experience of its employees. Therefore, the startup needs to figure out how to find employees with the required skills and capabilities. They also need to factor in the cost of attracting and retaining these employees. Then at some point, most startups dream of going public. But do they have the time, effort, and money to do so? Filing an IPO is an expensive process. And there are multiple legal, reporting, and regulatory compliance risks involved. After all that, what if the company doesn’t take off? Also, what if ownership gets diluted? Many startups forget that when people are investing in a company, they have the right to vote on certain decisions. As a result, business goals and operation methods may change. Is the startup prepared for these risks?

Another risk area is that of acquisitions, divestitures, and mergers. The opportunities involved are plentiful. But acquiring or merging a company means absorbing their liabilities, risks, legal claims, compliance obligations, and everything else. It also means reconciling major cultural differences between two different workforces. Have these issues been considered? When I was part of the board for a company, it was not uncommon for us to spend as much time discussing the business risks as the opportunities of acquisitions. And that’s an approach that I continue to practice and recommend.

Cybersecurity Risks

Many startups think that they’re too insignificant to matter to cyber attackers. But, in fact, they are prime targets because unlike larger companies, startups don’t usually have the time or funds to implement sophisticated cybersecurity measures. Recently, the New York Times reported how several small Web startups—including Vimeo, Basecamp, Shutterstock, and MailChimp—were hit up by a wave of denial-of-service (DDoS) attacks.

Meanwhile, the latest internet security threat report from Symantec revealed that targeted spear-phishing attacks aimed at small businesses (1-250 employees) increased throughout 2013. One in five small businesses was targeted with at least one spear-phishing email.

Are startups doing enough to manage these risks? … Next Page »

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Fypio Aims at Online Real Estate Industry with Buyer-Centric Focus

Tue, 07/22/2014 - 20:03
Bruce V. Bigelow

When Michael Koh moved to San Diego in 2010, he expected to start a real estate business focused on luxury residential properties, much like the one he had created (and sold) in Argentina over the previous 11 or 12 years. Instead, he came up with an idea for a mobile app and Web-based technology that would be like combining Pinterest with Match.com for home buyers.

Now, with this week’s official launch of Fypio on the iTunes App Store, Koh says his goal is to gain headway against the entrenched giants of online real estate—Seattle-based Zillow (NASDAQ: Z) and San Francisco’s Trulia (NYSE: TRLA). He views Fypio as a second-generation Web 2.0 startup that is using social media and interactivity to reshape the online real estate business in the same way that LinkedIn made inroads against Monster.com.

The user interface and design created by Fypio co-founder John Kvasnic, a Toronto entrepreneur and IT services provider, enables people to personalize their search for a new home by setting preferences that go way beyond a typical “3 BR, 2 Bath, 1,650 square feet” real estate listing.

Fypio’s preferences can be set to select real estate listings on the basis of such lifestyle features as rustic fireplace, houses with views, kitchen design style, outdoor living space, and pet-friendly parks. The app also can draw information from databases that rank local schools, rate neighborhood crime, and even display the personal incomes of nearby homeowners.

fypio display screen

Homebuyers can use Fypio to create lists of images and data about their favorite homes, favorite rooms, design features, and other amenities. Koh views social networks as the next evolution in real estate technology. So Fypio makes it easy for a user to share lists or individual images by e-mail, instant messaging, Twitter, and Facebook. Someone shopping for a home can use Fypio to create a dream house made up of different rooms and share that with their real estate agent. The agent can respond with the listings that come closest to a match.

Koh says Fypio’s online technology also includes learning algorithms that can suggest other real estate listings with similar rooms and design features, much like the “Genius mixes” on Apple iTunes that draw upon a user’s preferences to recommend other music and artists.

“No one else is learning anything from all these tens of millions of real estate shoppers,” Koh says. With Fypio, however, “we’re learning as they’re looking—how long they’ve been looking at property and what their preferences are: if they want a view, where they are looking, what kind of schools they want. We really get to know you as a person and what’s important to your search.”

It is this use of preference-based learning, interactivity, and social media capabilities that differentiate Fypio, and that represent a better overall value for consumers, Koh says. While Zillow claims to get almost 83 million unique monthly visitors, and Trulia says it gets over 51 million, Koh says, “With Zillow and Trulia, there’s no social media. There’s no interactivity. They’re just kind of a flat directory.”

(In Seattle, Xconomy’s Ben Romano says the big industry leaders would disagree. Zillow Diggs, for example, has lots of social features.)

So if Trulia and Zillow already are incorporating similar … Next Page »

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Teradata-Hadapt Deal Signals Big-Data Buyouts as Big Firms Move In

Tue, 07/22/2014 - 15:31
Gregory T. Huang

It’s a familiar storyline: Boston-area startup develops promising technology, starts to build a real business, and then gets snapped up by a West Coast giant.

The startup in this case is Cambridge, MA-based Hadapt, which has been acquired by Teradata, the Ohio-based data warehousing company with big operations in San Diego. Terms of the deal weren’t disclosed, but I’ve confirmed the price was $50 million in cash and stock. (BetaBoston’s Dennis Keohane broke the news last week.)

It’s not a home run for investors—including Atlas Venture, Bessemer Venture Partners, and Norwest Venture Partners—who put in just under $17 million total. But it’s a good outcome, according to the sources I’ve talked to.

“The reason to sell is that the Hadoop space is moving very quickly,” says Hadapt’s former chairman Chris Lynch, a partner with Atlas Venture. “There’s been tremendous consolidation since [Hadapt] started.” (See recent deals from Cloudera, Hortonworks, MapR Technologies, and others.)

The 35-person company has been trying to merge advanced databases with the Hadoop open-source analytics platform—all with the goal of helping businesses in finance, retail, and other industries handle “big data” and huge numbers of user queries in an efficient way.

“Normally you have three to five years to develop a distribution channel,” Lynch says. “In this case, from point of product development they had less than 12 months.” He adds that it “would have been highly risky” to continue as an independent startup. Instead, Hadapt’s technology can now benefit from Teradata’s help on the product and distribution front.

Hadapt went through layoffs and had some other staff leave in the past year. (Ever the combatant, Lynch says that one local reporter who said the company was “on death watch” is “irrelevant and disconnected from reality.”)

In recent years, Lynch has helped engineer the acquisition of Vertica Systems by HP, Azuki Systems by Ericsson, and now Hadapt.

One bigger theme around Boston: outside enterprise companies gaining local footholds by acquiring startups and building around them. It’s not a new trend—see Oracle with Endeca and Acme Packet, and IBM with Cloudant most recently (see also Netezza).

Indeed, Lynch says Teradata (NYSE: TDC) is looking to expand its staff in the Boston area to something like 180 people, including Hadapt. He says there are plans for the Hadapt team to move into a bigger office, probably still in Cambridge.

“I’m trying to bring Fortune 500 tech companies focused on enterprise to Boston,” Lynch says, “to invest in Boston people, work ethic, and loyalty. They can hire 200 people here, and it’s almost impossible to do that from scratch on the West Coast.”

I first wrote about Hadapt in early 2011, when the Yale spinout was still based in Connecticut. The company moved to Boston later that year when it raised its first venture round.

Hadapt is led by CEO and co-founder Justin Borgman, who will stay on as a Teradata vice president, reporting to Scott Gnau, president of Teradata Labs, based in San Diego.

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San Diego’s EdgeWave Raises $6M to Counter Intense Cyber Attacks

Tue, 07/22/2014 - 08:30
Bruce V. Bigelow

In the “Spy vs. Spy” world of cybersecurity, everything changes and nothing stays the same. So it should come as no surprise that EdgeWave, a San Diego-based cybersecurity company, has been through a few transmutations since it was founded in 1995 as St. Bernard Software.

As part of its latest transformation, EdgeWave says today it has raised $6 million in new equity funding from TVC Capital, the San Diego growth equity firm that specializes in software and software-enabled service companies. EdgeWave says TVC’s investment, along with a $5 million credit facility arranged separately with Square 1 Bank, will be used to accelerate demand for the company’s security technology for corporate computer networks and other big customers.

The announcement marks the culmination of an overhaul that began in early 2012, when telecom executive and former Naval aviator Dave Maquera joined the company.

Maquera, who officially succeeded Lou Ryan as CEO almost 20 months ago, has been enacting a comprehensive new strategy for EdgeWave that takes the company into cloud-based computing to address today’s proliferating array of new security vulnerabilities, made possible by the rise of social media and mobile computing.

Dave Maquera

These days, computer networks are subject to intense and well-organized cyber attacks from groups as diverse as the Chinese military in Shanghai to cyber criminals in Russia. Citing some industry estimates, Maquera says companies, government agencies, and other institutions around the world spend about $73 billion a year on cybersecurity, yet still sustain cybercrime losses estimated at close to $475 billion a year.

“The net-net is when you’re spending $73 billion and losing half a trillion dollars, something is broken,” Maquera says. “What’s required is a robust, end-to-end security suite to counter the threats.”

Strategy is Maquera’s strong suit. He was previously the chief strategist at Clearwire, the Bellevue, WA, wireless wholesale carrier now owned by Sprint Nextel, and before that served as CIO and vice president of strategic development at San Diego’s Cricket Wireless, now part of AT&T.

Maquera, who flew in … Next Page »

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Cellectar, an OTC Stock, Eyes Nasdaq Jump to Boost Profile, Prospects

Tue, 07/22/2014 - 07:05
Jeff Engel

Cellectar Biosciences is trying to move from an over-the-counter (OTC) stock to trading on the Nasdaq stock exchange—and the stakes are high for the small Madison, WI-based biotech.

Winning approval to join the Nasdaq stock exchange could give Cellectar a boost in bringing its cancer drugs and imaging products to market—assuming the company can capitalize on the opportunity. And at the very least, Cellectar would raise its profile in both the investment and research communities by moving into the big leagues of a major exchange.

Whether it’s fair or not, small companies whose stock trades OTC often are associated with penny stocks—a “pejorative term,” says Eric Blanchard, a partner with law firm Covington & Burling in New York. As “The Wolf of Wall Street,” last year’s raucous Martin Scorsese flick, vividly describes, penny stocks can be manipulated in fraudulent “pump-and-dump” schemes.

But many OTC stocks can’t be tarred with the same brush as dubious penny stocks, adds Blanchard. (The SEC defines penny stock as securities issued by small firms that trade at less than $5 per share, generally OTC. Others set the threshold at $3 or $1 per share.) Indeed, for many small private companies, which don’t have enough visibility for a splashy IPO on a major exchange, trading their stock OTC is a logical next step for raising capital after the family and friends stage, despite the negative perception, says David Krause, a Marquette University finance professor and director of the Milwaukee school’s Applied Investment Management program. “Not every stock is Google or Apple; they have to start out oftentimes raising money where they can, and it may be in the penny market,” he explains.

Biotech and software startups sometimes go the OTC route because they lack the tangible assets, like industrial manufacturing equipment, that can be used as collateral to more easily obtain financing, he says. Or they can end up as an OTC stock as the result of a merger, as in the case of Cellectar. The once privately-held company was acquired in 2011 by Newton, MA-based Novelos Therapeutics, which was already an OTC stock, and which moved the headquarters of the combined company to Madison, where Cellectar was based.

It’s not the preferred path, Krause says. “Firms would try to avoid it if they could because of the connotation.” He equated it to hawking wares at a pawnshop. “It doesn’t mean you’re a bad person and that the money you’re raising isn’t valid, it’s just not the normal route that people—or in this case, businesses—go to raise money.”

That’s why some ambitious executives view trading OTC as a way station on the path to better things. Making the jump to a major stock exchange opens the business up to more liquidity and a bigger pool of investors, says Matt Rossiter, a corporate partner with Fenwick & West in San Francisco. And given investors’ recently revived interest in biotech companies (although the biotech IPO market might be cooling), now might be a good time for the sector’s startups to try to “up-list” from trading OTC to the Nasdaq—the home of most small, publicly traded biotechs. “It helps because investors are more aware of the sector and more optimistic about its prospects,” Rossiter says.

Cellectar’s executives and investors hope he’s right. The company recently enacted a 1-for-20 reverse stock split and announced it had applied to trade on the Nasdaq Capital Market, while also planning a public offering of additional shares. The firm awaits … Next Page »

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Starting Unicorn Companies: FireEye

Mon, 07/21/2014 - 16:03
Sramana Mitra

Last November, Cowboy Ventures’ Ailene Lee wrote a post on Techcrunch titled Welcome To The Unicorn Club: Learning From Billion-Dollar Startups. In it, she offered a list of companies that have had billion dollar exits, and analyzed some of the common threads. In this series, I would like to look at some of the ‘unicorn’ companies that she identified, as well as some others that I know well, and one by one, explore their early stage entrepreneurial journey.

We started the series with Tableau Software, and continue on today with FireEye, further elaborating on the general theme of cross-domain innovation.

Christian Chabot, CEO of Tableau, says: “They say that the greatest innovations are born from strange bedfellows.” FireEye’s founder Ashar Aziz found his sweet spot at the cusp of virtualization, networking, and security—industries that he had insights into, and that generally, did not talk to each other. “What we do is a combination of very deep system level work in virtualization and operating systems, as well as network-level packet processing,” Aziz says.

He loses no sleep worrying over the thought that some big giants will come in and replicate what he has done. “Large companies are very busy doing release 6.5 of the previous 6.0 version,” Aziz says. “They cannot take many different things and put them together. They do not have the varied domain expertise to put it all together.”

You can read the full interview with Ashar Aziz here on the 1M/1M blog. This interview (Oct 2008) was long before FireEye took off in the marketplace. But it gives you visibility into some of the core thought processes that went into envisioning what became a multi-billion dollar ‘unicorn’ company.

At its heart is a real, big problem that Ashar thought was worth solving. It was early, the market hadn’t fully started realizing the pain. But eventually, Ashar was right in his bet.

In September 2013, FireEye went public nine years after its founding. The company had raised more than $85 million in venture capital from Norwest Venture Partners, Sequoia Capital, DAG Ventures, Juniper Networks, Jafco Ventures, In-Q-Tel, Silicon Valley Bank and Goldman Sachs.

Note also, that this is not your popular lean startup. Instead, FireEye is a fat startup that had to make intensive R&D investments. [Related reading: How To Fund a ‘Fat’ Startup.]

Finally, note that the company did hire an outside CEO, and the founder took on the CTO role. However, during the IPO, he still owned close to 10 percent of the company that became worth almost $400 million.

The company’s current market cap is $3.2 billion.

While FireEye was heavily funded by VCs including Norwest and Sequoia, the lack of domain expertise to work with cross-domain innovation is a real issue in most venture firms. The level of conviction it would take an early-stage investor to understand three different fields and synthesize the learning in terms of technology, business models, go-to-market strategy and people is rare in today’s Silicon Valley and altogether absent elsewhere in the world.

This raises a major question: How does cross-domain innovation get brought to market? Contrary to lean startups and web ventures, high-impact cusp ventures require real investment up front to assemble cross-domain teams and fund extensive R&D. The gestation periods are longer, but so are the impact and the returns. Not all of them can be bootstrapped to validation, certainly not unless the entrepreneur has personal capital to play with. Ashar did not. His previous venture had failed.

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Sexism and Misogyny in Tech: How Investors Can Help Drive Change

Mon, 07/21/2014 - 11:50
João-Pierre S. Ruth

The image of some technology startups has been tarnished of late by bad behavior. It might be up to investors who are board members to ensure changes get made.

Accusations of sexism and misogyny have circled Tinder, the dating-app startup owned by IAC. If the charges prove to be true, it is just one recent example of a sometimes hostile environment for women in tech circles. In recent months, allegations that include sexual assault, harassment, and misogynistic messages have been linked to CEOs of Snapchat, Urban Airship, and GitHub.

Everyone agrees offensive behavior has no place in any workplace—and the innovation community will be damaged by it the longer it persists. The question is what to do about it.

“There is a cultural problem,” says Ed Zimmerman, chair of the tech group at law firm Lowenstein Sandler in New York. “That is what we need to fix. The gender bias, the antifeminism, and the chauvinism are just pathetic and despicable.”

He is talking about a far bigger problem also seen in many parts of society—and he is far from alone in wanting positive change for the technology scene. Groups such as Girls Who Code and the NYTM Coalition for Women in Tech support the presence of women as founders and creators of new technology and businesses. Yet, fairness and respect remain elusive on some fronts.

“As is evident from recent headlines, the observations, and experiences of women throughout the community, the tech sector isn’t always a very welcoming place to people from underrepresented groups,” says Jessica Lawrence, executive director of New York Tech Meetup (NYTM), via e-mail.

Media coverage has helped expose the reality of what women have to cope with in tech, she says, though there continue to be deniers of the issue. “For many people, it can be difficult to believe that sexism could still be so pervasive, given how much progress we have made in so many other areas,” Lawrence says. “Seeing the often angry, sexist, and even threatening reactions to women when they do share their stories is further proof of the problem that exists.”

Cementing more roles for women in the innovation movement continues to be an uphill fight. “Girls from a young age are still often being steered away from technology and engineering careers or are not being exposed to them as an option,” Lawrence says.

Lack of diversity, she says, is a challenge for the technology sector—and things might not be moving in the right direction. “The number of women graduating with computer science degrees has been going down,” she says. “In New York City, the technology community as a whole is only about 29 percent women.” Lawrence also cites a 2012 report by Startup Genome that estimated female-founded startups made up about 20 percent of the New York community.

So what should be done? To make the tech scene fairer and more respectful of women, Lawrence believes technology literacy must be integrated into all public education, starting with pre-kindergarten. “When girls are exposed early to technology, we increase the likelihood that they will pursue careers in those fields,” she says.

Technology companies also need to make sure they are welcoming to people of all backgrounds, Lawrence says. Furthermore, she says, investors have an important role to play, by paying more attention to the diversity of founding teams before providing funding.

Indeed, the paucity of funding for women-led startups is an issue that boils down to fair treatment, says Jules Pieri, CEO and co-founder of The Grommet, a Boston-area Internet firm. “When funding is a more difficult obstacle than the business, you have to ask how you are going to do this if basically you’re not welcome,” she says of the startup fundraising process.

The hope, as Pieri puts it, is that more diversity should also increase respect for others in the innovation scene. But to investors, startup culture and diversity can be seen as separate from issues of bad behavior. Brad Feld, a managing director at Foundry Group in Colorado, says via e-mail that board members “have a clearly defined responsibility. It’s not around ‘the culture’—every company develops its own culture—but what to do around inappropriate behavior in the company when it arises.”

David Teten, a partner with ff Venture Capital in New York, says a primary obligation of board members is to make sure the companies they back comply with the law regarding issues in the workplace—but that is not enough. “By the time you’re worried about lawbreaking, you’re already in trouble,” he says. “It implies you haven’t set up systems and processes to lower the odds of violating the law.” Investors and CEOs, he says, should think about putting measures in place to make sure the rights of staff are upheld.

Moreover, he says board members need to … Next Page »

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Big Wave of Q2 VC Funding Washes Ashore in San Diego with $222M

Mon, 07/21/2014 - 01:40
Bruce V. Bigelow

So how did San Diego fare as the biggest wave of venture capital funding in 13 years swept across the United States, sloshing capital into startups from Silicon Valley to New York, and from Seattle to Houston?

The answer is just OK.

Venture capital firms invested a total of $222.4 million in 26 deals in the San Diego area during the second quarter of 2014, according to the MoneyTree Report from PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters. The amount of dollars invested in San Diego declined by 15 percent from the $261.4 million that VCs put into 26 startups during the previous quarter, according to MoneyTree data. But it was a 22 percent gain from the $182.2 million that VCs put into 20 deals during the year-ago quarter of 2013.

(San Diego’s list of second-quarter Top 10 Deals is listed below.)

As we reported last week, VCs invested almost $13 billion into 1,114 U.S. startups nationwide during the second quarter, marking the biggest quarterly investment total since $13.1 billion was invested in the first quarter of 2001.

But the big nationwide surge wasn’t apparent in the MoneyTree data for San Diego. In fact, venture investing in San Diego so far this year is more characteristic of 2012, when the average quarterly investment was $239 million, than of 2001, when the average was $395 million a quarter (without factoring for inflation).

The breakout of second-quarter MoneyTree data shows that two-thirds of the $222.4 million invested in San Diego went into life sciences companies like Otonomy, which raised $49 million, and Cidara Therapeutics, which got $32 million. VCs invested a total of $27 million in nine San Diego software companies, with $20 million of that going to … Next Page »

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There Was Life Before Smartphones, But Who Can Remember It?

Fri, 07/18/2014 - 07:00
Wade Roush

I’m lakeside this week in northern Michigan, hanging out with my extended family. It’s been interesting to observe my six-year-old nephew, who won’t go anywhere without a Power Rangers Megaforce robot in one hand and a Ty Monstaz plush toy in the other. They’re right beside him at the breakfast table, on the dock, at the beach, in the car, and in bed, like 21st-century security blankets.

It would be easy to chuckle at his attachment to the toys, if it weren’t so obvious that I have my own security blanket: my smartphone. Without it, I’m prone to feelings of anxiety and disconnectedness—an experience likely shared by hundreds of millions of other adults. It’s my compass, my map, my calendar, my camera, my news source, my emergency transponder, and generally the umbilical cord linking me to civilization.

While companies were already using the term “smartphone” in the late 1990s, the real arrival of these bewitching and now-ubiquitous gadgets can be dated to June 29, 2007, the day Apple released the iPhone. That was just two days after Xconomy went live on the Web, so in a sense the publication—along with many other online publications—has grown up right alongside smartphone technology. It’s hard to think of any other invention that has been embraced so quickly, so widely, and so wholeheartedly as the smartphone. Today we’re so accustomed to having the devices with us—at the breakfast table, on the dock, at the beach, in the car, and in bed—that we forget how new they really are, and how much they’ve changed our lives.

For the sake of perspective, let’s run through a list of activities that were somewhere between “tedious” and “impossible” on a phone before the summer of 2007.

Sending a text message. Before touchscreen devices with virtual QWERTY keyboards, texting required either a Blackberry-style device with a physical keyboard or the patience to multi-tap on a numeric keypad.

Listening to music. Between 2005 and 2009, Apple and Motorola worked together on an uninspiring line of phones called Rokr that could run Apple’s iTunes media player software. Other than that, it was pretty hard to download or store music on a phone, let alone play it.

Settling a bar-room argument, or looking up the name of that actor in that movie. The first few generations of Web-capable mobile phones couldn’t really handle HTML, so the mobile Web was ugly and slow. If you remember the Wireless Access Protocol, or WAP, then you can recall the minimalist numeric menus that, after much fuss, gave you access to a few news headlines or sports scores. Checking Wikipedia or IMDB, or figuring out what song was playing? Forget about it.

Taking a selfie. Before smartphones, cameras with front-facing displays (or displays with front-facing cameras) were rare. So you couldn’t properly frame a photo of yourself posing in front of the Eiffel Tower, the Taj Mahal, or the Miss Piggy balloon at the Macy’s Thanksgiving Day Parade.

Sharing your selfies—with anyone. Before iOS and Android, there was no Instagram, no Snapchat, no Hipstamatic, no Path. It was only after engineers married cameras, phones, 4G wireless broadband, and photo-filter apps that photography emerged as a compelling form of social media.

Getting directions and navigating. If you were traveling somewhere new, you had to fire up a desktop browser before your trip, go to a service like Mapquest, and print out a map. If you forgot to do that, you were on your own. And even with the map, unless you had a passenger or a stand-alone navigation system, you didn’t have a voice reading turn-by-turn directions.

Playing Angry Birds, Words With Friends, or Infinity Blade. I’m old enough to remember a time when the pinnacle of entertainment on a mobile phone was a maze game called Snake. Thanks to Moore’s Law, the graphics cards in today’s smartphones rival those in the high-end game consoles of just a few years ago.

Taking the office with you. Farhad Manjoo had a nice piece in the New York Times last week about the benefits smartphones bring for busy professional parents, who can more easily mix work and family life. “Because you can work from anywhere thanks to your phone, you can be present and at least partly attentive to your children in scenarios where, in the past, you’d have had to be totally absent,” Manjoo pointed out. Of course, there’s also a certain cost to having an e-mail inbox that you can never really get away from. But overall, smartphones add greatly to our productivity, by letting us get things done without having to be at our desks.

And this list only scratches the surface. I’m on record predicting that there won’t be any more earthshaking changes in consumer computing technology until the early 2020s, in part because it takes such a long time for what I call “organizing innovations” like the smartphone to be properly absorbed and exploited. There’s plenty of room for smartphone designers to make the devices even more powerful and appealing than they are today, without wasting time exploring tangents like smart watches, smart glasses, or other wearables. (Smartphones are wearables: you wear them in your pocket, your purse, or your hand.)

You can take my laptop. You can take my tablet. But you can’t take my smartphone from me: it’s the centerpiece of my information existence, and yours, I’m betting.

It’s no wonder people bought nearly a billion of the glowing gadgets in 2013. They’re as irresistible for adults as Power Rangers and My Little Pony are for my nephew and niece.

And you can even use them to make phone calls.

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Mega Deals (Like Uber) Boost Venture Funding to $13B

Fri, 07/18/2014 - 00:59
Bruce V. Bigelow

Venture capital investors pumped almost $13 billion into 1,114 U.S. startups in the second quarter—marking the highest level of VC funding in 13 years, according to the MoneyTree Report being released today.

While the number of deals is comparable with recent quarters, the $12.97 billion VCs deployed this spring was a third more than the $9.7 billion VCs invested during the first quarter, and 81 percent higher than the $7.2 billion invested during the same quarter of last year, according to MoneyTree data. PricewaterhouseCoopers and the National Venture Capital Association (NVCA) prepare the MoneyTree Report, based on data from Thomson Reuters.

(Our list of MoneyTree’s Top 10 Deals is below.)

The latest findings confirm a quick snapshot on VC activity that came out last week from CB Insights, showing that second-quarter venture funding totaled almost $13.9 billion. Another source of data on VC activity, Dow Jones VentureSource, reported yesterday that over $13.8 billion was invested nationwide over the three months that ended June 30.

The absolute numbers vary because each survey uses different sources and ways of measuring venture dollars and deals. For example, the MoneyTree Report did not include a $450 million round in San Francisco-based Airbnb, which was widely reported in April and was included by CB Insights and Dow Jones VentureSource. (A MoneyTree spokeswoman said the Airbnb would likely be included in third-quarter data because the deal won’t actually be funded until July.)

Nevertheless, all three VC surveys agree that venture investments levels this spring were the highest since the dot-com era, and 2014 is already shaping up to be a spectacular year for the VC industry.

Comparisons to the dot-com bubble might seem inevitable, but a couple of factors are distorting the picture, according to … Next Page »

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West Coast Biotech Roundup: Genentech, CareDx, and More

Thu, 07/17/2014 - 15:28
Alex Lash

The week started amid anticipation of a new round of public debuts, with six of the 11 companies queued up coming from the life sciences, according to Renaissance Capital. Then on Tuesday, the Federal Reserve singled out two sectors as overvalued: social media and biotechnology. The biotech indices dropped nearly 4 percent the next two days and have continued to fall Thursday. Will IPOs be affected? As of this writing, three of the six life science firms on the slate have gone public. We lead this week’s roundup with the one IPO on our side of the country, CareDx, plus more of the latest news on fundraising, deal making, and drug testing from the West Coast.

—CareDx ((NASDAQ: CDNA), a Brisbane, CA maker of heart diagnostics, took its shares public Wednesday, selling 4 million at $10 apiece to raise $40 million before fees. That’s about 20 to 25 percent lower than it hoped for. Formerly known as XDx, the firm’s main product is a monitor that tests the blood samples of heart transplant patients to warn doctors of post-transplant rejection. Its top pre-IPO shareholders were Kleiner, Perkins, Caufield & Byers, TPG, Sprout Capital, Intel, and Burrill & Co. Pre-IPO shareholders agreed to buy up to 345,000 shares in the offering. Underwriters can sell an additional 600,000 shares in the next 30 days.

—Our San Diego editor Bruce V. Bigelow interviewed Rich Heyman, the scientist-CEO who sold two San Diego-based cancer companies in the span of a year. We examined his strategy to optimize the value of second-generation drugs that treat hormone-driven cancers. Last summer, Johnson & Johnson ((NYSE: JNJ) bought Heyman’s Aragon Pharmaceuticals for $1 billion. Almost exactly a year later, Roche’s Genentech bought Aragon’s successor company, Seragon Pharmaceuticals, for up to $1.7 billion. Here’s how Heyman did it.

—Genentech and Exelixis (NASDAQ: EXEL), both of South San Francisco, CA, said Sunday that Exelixis’s experimental cancer drug cobimetinib, when combined with the approved drug vemurafinib (Zelboraf), increased the life span of patients with a specific type of advanced melanoma compared to vemurafinib alone. The Phase 3 study gathered 495 patients with melanoma that carries the the BRAF V600 mutation. Genentech said it plans to submit the data to the Food and Drug Administration for approval. Exelixis originally sold development rights for cobimetinib to Genentech in 2006.

—Genentech didn’t fare as well with Phase 2 clinical results of crenezumab, a treatment for Alzheimer’s disease that was originally developed by Swiss firm AC Immune. Genentech and its parent, Roche, were in charge of a trial to treat mild-to-moderate Alzheimer’s. The results were disappointing, but still held “a glimmer of hope,” according to Matthew Herper of Forbes.

—San Diego-based Edico Genome raised $10 million in Series A financing to commercialize the specialized processor technology it has been developing to slash the time and cost of genome mapping. It raised the round from Qualcomm Ventures, Axon Ventures, and Greg Lucier, the former chair and CEO of Life Technologies. Edico says its technology reduces the computational time required for analyzing a whole human genome from 24 hours to 18 minutes.

—San Diego-based Otonomy, which has raised $144 million from investors since the biotech was founded in 2008, plans to raise as much as $86 million in an IPO, according to a regulatory filing. Avalon Ventures partner Jay Lichter started the company to develop new therapies for ear diseases and disorders. Its lead candidate is … Next Page »

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